A generation of Goldman Sachs fixed income traders are cheering. Turns out Goldman is still a meritocracy after all.
The cause for celebration is the exit of Isabelle Ealet and Pablo Salame, two of the three co-heads of Goldman Sachs' securities business. As first reported by Business Insider, the GS securities business is now run solely by Ashok Varadhan, a former swaps trader who made partner aged just 29.
Goldman Sachs' newer managing directors and partners had long been complaining about Ealet and Salame's dominance of the fixed income business, particularly after a succession of bad years. Revenues from Goldman Sachs' fixed income currencies and commodities (FICC) activities fell nearly 30% last year, compared to a decline of just 4% at Morgan Stanley. Both Ealet and Salame were GS veterans and close confidants of soon-departing CEO Lloyd Blankfein: Ealet joined in 1991, Salame in 1996.
Internally, there was big frustration about their longevity. For a firm which likes to clear out its bottom 5% of performers annually, Goldman seemed strangely wedded to its under-performing senior partners.
"There were three securities division heads," says one retired Goldman partner, adding cryptically, "One never really had a chance. One was out of touch with the floor. One was suffocating the entire institution. Now that one finally has an chance."
When news of Blankfein's exit surfaced in March, another Goldman insider called for the leadership of the securities division to be shaken up, saying, "We read that they're getting paid $18m++ for sending us into terminal decline, while the rest of us are being told we need to take a pay cut because the division has done so poorly. It's no surprise people are leaving. Everyone is talking about it. It's time for Lloyd and the securities division heads to go."
Now, Blankfein, Ealet and Salame are all going. But only after a long delay and intimations of infighting.
Salame tried to turn things around in July 2017 by declaring he was tired of losing and intoning GS securities staff to, "Just add butter!" when dealing with clients. This didn't seem to have the desired effect: Goldman's FICC revenues declined by 50% year-on-year in the final quarter of 2017. "Pablo was a trader, trying to become a client champion, without any client skills," says one GS insider, scathingly.
Salame and Ealet seem to have had their differences. During the stress of 2017, Salame was critical of GS staff whom he said spent too long in their offices rather than out on the trading floor. This sounded like a swipe at Ealet, whom GS insiders tell us, "literally never left her office." Ealet's longevity was itself notable following succession of poor quarters in the commodities division (which she was closest to). She clung on, even as subordinates like Greg Agran, the former global co-head of commodities at Goldman were placed into premature retirement.
Salame and Ealet's exits come during a partner year at Goldman Sachs. Varadhan is now the all-important king (and queen) maker for the securities division. His influence on this year's partner promotions will set the tone as Goldman goes for an additional $1bn of revenues in its fixed income business. Salame was formerly head of Goldman's partnership committee but was, "weak," according to Goldman insiders, who suggest that the process had become too political under his leadership.
Announcing Salame and Ealet's exits internally, Goldman complimented Ealet on her "worth ethic" insights and risk management, and Salame on his passion for Goldman's culture, his risk management skills and his efficient use of Goldman's resources.
With their exits, a new era has begun. Goldman's FICC revenues already rose 107% quarter-on-quarter in the first three months of 2018. Varadhan just needs this momentum to continue.
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